M/S Seema Silk & Sarees & ANR. Vs. Directorate of Enforcement &
Ors.  INSC 888 (12 May 2008)
REPORTABLE IN THE SUPREME COURT OF
INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 860 OF 2008 [Arising
out of SLP (Crl.) No. 6812 of 2007] M/s. Seema Silk & Sarees & Anr.
...Appellants Versus Directorate of Enforcement & Ors. ...Respondents
S.B. SINHA, J :
1. Leave granted.
2. Constitutionality of
Sub-sections (2) and (3) of Section 18 of the Foreign Exchange Regulation Act,
1973 (for short "the Act") is in question in this appeal which arises
out of a judgment and order dated 30.07.2007 passed by the High Court of
Judicature at Bombay in Criminal Writ Petition No. 336 of 2007.
3. Appellant No. 1 herein is a
partnership firm and Appellant No. 2 is its partner. Appellant No. 1 used to
export garments and textiles to various countries. It allegedly could not
repatriate the value of goods from the export proceeds. According to the
appellants, whereas export to developed economies like US, UK, Europe and
Japan, on credit basis, does not undergo severe competition and very minimal
profit margin can be maintained, export to the less developed countries or the
countries with poor legal system earn greater profit margin.
4. Appellants' business allegedly
came to a standstill because of its inability to repatriate export proceeds to
the tune of 16.5 crores from a few overseas buyers. A notice was issued by the
Enforcement Directorate under Sections 18(2) and 18(3) of the Act alleging that
in view of their failure to repatriate the entire sale proceeds of the exports
which the appellants have made during 1997-98, the said provision is attracted.
They, in the cause shown,
allegedly furnished details of repatriation they could bring about as also the
steps taken by them in that behalf. They applied for extension of time through
the authorized dealer, viz., the Canara Bank. However, with the passage of
time, the Branch 3 Manager of the Bank did not grant any extension of time for
repatriation of the export proceeds. A suit was also filed by the Canara Bank
before the Debt Recovery Tribunal, Mumbai.
5. The Enforcement Director, in
the aforementioned proceedings, imposed a penalty of Rupees One Crore on the
firm and Rs.25 lakhs each on the partners. An appeal preferred by the
appellants before the Appellate Tribunal was allowed holding that the
appellants have taken all reasonable steps for repatriation. A further appeal
was taken by the Enforcement Directorate before the High Court which was marked
as FA Nos. 8 and 9 of 2005. However, the High Court although entertained the
appeal, did not pass any order of stay.
6. A criminal case was also
initiated. Cognizance thereon was taken and the appellants were summoned by an
order dated 19.06.2004 by the Chief Metropolitan Magistrate, Esplanade Court,
Mumbai. Appellants thereafter filed a criminal application bearing No. 6901 of
2005 for quashing of the criminal proceedings pending against them. The said
application was disposed of by an order dated 26.07.2006 observing that as the
appellants had already filed application for discharge, the learned Magistrate
may pass appropriate order thereupon.
4 By an order dated 10.10.2006,
the said application for discharge was dismissed. It was inter alia contended
by the appellants in the said discharge application that the order of Tribunal
being civil in nature, the same was binding on the criminal court and, thus,
the prosecution against them under Section 56 of the Act for was not
maintainable. The order taking cognizance having been passed on 27.05.2002, the
same was contended to be bad in law.
7. Appellants preferred writ
petition thereagainst questioning the constitutionality of Sections 18(2) and
18(3) of the Act as also constitutional validity of the Constitution 39th Amendment
Act. By reason of the impugned judgment, the said writ petition has been
8. Mr. Mathews J. Nedumpara,
learned counsel appearing on behalf of the appellants, would submit that
Sections 18(2) and 18(3) of the Act placing the burden of proof upon the
accused must be held to be a law having draconian character and, thus, is
5 It was submitted that by reason
of the said provision, discrimination has been made between a domestic trader
and an exporter and, thus, the same is violative of Article 14 of the
Constitution of India.
It was urged that validity of the
said provision must be judged on the touchstone of commercial considerations
inasmuch as whether an exporter may not be able to repatriate the export
proceeds particularly when such exports are made to the developing countries.
The learned counsel would contend that all traders in terms of the provisions
of the Income Tax Act, 1961 make a provision for bad debt. When a trader
suffers loss, it is permissible to make a provision for writing off such bad
debts. It was furthermore urged that in terms of the provisions of the Income
Tax Act, the accounts are required to be audited by a Chartered Accountant and,
thus, the impugned law being contrary to the accounting practice should not be
sustained. Such repatriation of exports proceeds, thus, being uncertain, it was
urged, the impugned provisions as also the Constitution 39th Amendment Act
cannot be sustained.
9. Mr. G. E. Vahanvati, learned
Solicitor General appearing on behalf of the respondents, on the other hand,
would submit that a domestic trader and an exporter belong to different classes
and such classification, 6 being valid, the impugned provisions are not ultra
vires Article 14 of the Constitution of India.
It was pointed out that having
regard to the nature of business and the risk involved in the export of
commodities, the appellant could approach the Reserve Bank of India for grant
of exemption and in that view of the matter it does not cause even any hardship
to any individual.
10. Sections 18(2) and 18(3) of
the Act reads as under:
"18. Payment for exported
(1) *** (2) Where any export of
goods, to which a notification under clause (a) of sub-section (1) applies, has
been made, no person shall, except with the permission of the Reserve Bank, do
or refrain from doing anything, or take or refrain from taking any action,
which has the effect of securing - (A) in a case falling under sub-clause (i)
or sub- clause (ii) of clause (a) of sub-section (1),- (a) that payment for the
goods - i. is made otherwise than in the prescribed manner, or 7 ii. is delayed
beyond the period prescribed under clause (a) of sub-section (1), or (b) that
the proceeds of sale of the goods exported do not represent the full export value
of the goods subject to such deductions, if any, as may be allowed by the
Reserve Bank; and (B) in a case falling under sub-clause (ii) of clause (a) of
sub-section (1), also that the sale of the goods is delayed to an extent which
is unreasonable having regard to the ordinary course of trade: Provided that no
proceedings in respect of any contravention of the provisions of this
sub-section shall be instituted unless the prescribed period has expired and
payment for the goods representing the full export value has not been made in
the prescribed manner within the prescribed period.
(3) Where in relation to any goods
to which a notification under clause (a) of sub-section (1) applies the
prescribed period has expired and payment therefor has not been made as
aforesaid, it shall be presumed, unless the contrary is proved by the person
who has sold or is entitled to sell the goods or to procure the sale thereof,
that such person has not taken all reasonable steps to receive or recover the
payment for the goods as aforesaid and he shall accordingly be presumed to have
contravened the provisions of sub-section (2)."
11. Admittedly, the Act finds
place in the Ninth Schedule of the Constitution of India. In terms of Article
31B of the Constitution of 8 India inter alia none of the Acts specified in the
Ninth Schedule is ultra vires even if it is inconsistent with or takes away or
abridges any of the rights conferred by any provisions of Part III of the
Constitution of India.
12. Appellants have questioned the
validity of the Act only on the ground of infringement of Article 14 of the
Constitution of India. Apart from the fact that the Act is protected under
Article 31B of the Constitution of India having been placed in the Ninth
Schedule thereof, even otherwise, we do not find any reason to arrive at a
conclusion that the Act is ultra vires Article 14 of the Constitution of India.
A discrimination on the ground of valid classification which answers the test
of intelligible differentia does not attract the wrath of Article 14 of the
Constitution of India. Hardship, by itself, may not be a ground for holding the
said provision to be unconstitutional.
In Ajoy Kumar Banerjee v. Union of
India [(1984) 3 SCC 127], this Court held:
"50. Differentiation is not
always discriminatory. If there is a rational nexus on the basis of which
differentiation has been made with the object sought to be achieved by
particular provision, then such differentiation is not discriminatory and does
not violate the 9 principles of Article 14 of the Constitution.
This principle is too well-settled
now to be reiterated by reference to cases. There is intelligible basis for
differentiation. Whether the same result or better result could have been
achieved and better basis of differentiation evolved is within the domain of
legislature and must be left to the wisdom of the legislature.
Had it been held that the scheme
of 1980 was within the authority given by the Act, we would have rejected the
challenge to the Act and the scheme under Article 14 of the Constitution."
13. No case has been made out that
the Act is confiscatory in nature.
No foundation fact has also been
brought on record.
Appellants have not annexed even a
copy of the writ petition. The learned counsel has not been able to satisfy us
that there existed any factual foundation in support of his argument.
In Southern Petrochemical
Industries Co. Ltd. v. Electricity Inspector & ETIO [(2007) 5 SCC 447],
this Court held:
"69. The issue that the 2003
Act is in violation of the equality clause contained in Article 14 of the
Constitution of India was not raised before the High Court. Only in one of the
civil appeals, prayer was made for urging additional ground and the same having
been directed, additional ground has been taken to urge the said question. A
ground taken, however, must 10 be based on a factual foundation. For attracting
Article 14, necessary facts were required to be pleaded. The foundational facts
as to how Section 14 of the 2003 Act would be discriminatory in nature have not
been stated at all. The Government of Tamil Nadu has also not been given any
opportunity to meet the said contention.
70. It is now trite that such
factual foundation, unless is apparent from the statute, itself, cannot be
permitted to be raised and that too for the first time before this Court."
It was further opined:
"74. In absence of necessary
pleadings and grounds taken before the High Court, we are not in a position to
agree with the learned counsel appearing on behalf of the appellants that only
because Section 13 of the repealed Act is inconsistent with Section 14 of the
2003 Act, the same would be arbitrary by reason of being discriminatory in
nature and ultra vires Article 14 of the Constitution of India on the premise
that charging section provides for levy of tax on sale and consumption of
electrical energy, while the exemption provision purports to give power to
exempt tax on "electricity sold for consumption" and makes no
corresponding provision for exemption of tax on electrical energy
self-generated and consumed."
14. In absence of such factual
foundation having been pleaded, we are of the opinion that no case has been
made out for declaring the said provision ultra vires the Constitution of
15. A domestic trader and an exporter
stand on different footings. The said provisions were made when the country was
undergoing severe `foreign exchange crunch'. The Parliament in its wisdom has
inserted the said provisions so as to prevent fraud. Sub-section (1) of Section
18 of the Act provides for filing of an application for grant of exemption by
the Reserve Bank of India. Refusal to give such an exemption is required to be
preceded by reasonable opportunity of making a representation.
16. A legal provision does not
become unconstitutional only because it provides for a reverse burden. The
question as regards burden of proof is procedural in nature. [See Hiten P.
Dalal v. Bratindranath Banerjee, (2001) 6 SCC 16 and M.S. Narayana Menon v.
State of Kerala, (2006) 6 SCC 39] 17. The presumption raised against the trader
is a rebuttable one.
Reverse burden as also statutory
presumptions can be raised in several statutes as, for example, the Negotiable
Instruments Act, Prevention of Corruption Act, TADA, etc. Presumption is raised
only when certain foundational facts are established by the prosecution. The
accused in 12 such an event would be entitled to show that he has not violated
the provisions of the Act. In a case of this nature, particularly, when an
appeal against the order of the Tribunal is pending, we do not think that the
appellants are entitled to take the benefit thereof at this stage. Such
contentions must be raised before the criminal court.
18. Commercial expediency or
auditing of books of accounts cannot be a ground for questioning the
constitutional validity of a Parliamentary Act. If the Parliamentary Act is
valid and constitutional, the same cannot be declared ultra vires only because
the appellant faces some difficulty in writing off the bad debts in his books
of accounts. He may do so. But that does not mean the statute is
unconstitutional or the criminal prosecution becomes vitiated in law.
19. An order of discharge can be
interfered with by the High Court on limited grounds. At that stage, it need
not be shown that the appellants may not ultimately be convicted. It is enough
if there exists a strong suspicion.
20. The factual matrix involved in
the matter is one of the accounting.
The burden being on the appellants
to show that they had taken all 13 permissible steps as are provided for under
the law, the question of passing any order of discharge at this stage would not
21. The export was to the tune of
US $ 55,03,218.78. Appellants on their own showing exported goods to the
countries like USA, Canada, France, Indonesia, etc. They did not obtain any
general or special permission from the Reserve Bank of India for
non-realisation of export proceeds beyond six months which is the period
specified under Sub- section (1) of Section 18 of the Act.
22. As all contentions as to
whether the appellants have committed any offence or not shall remain open, we
are of the opinion that no case has been made out for interference of the
impugned judgment. The appeal is dismissed. No order as to costs.
[Lokeshwar Singh Panta] New Delhi;